- The Washington Times - Monday, September 3, 2001

The economy's persistent sluggishness doesn't give us much to celebrate this Labor Day weekend. Not with rising unemployment, falling business earnings, and a nearly zero growth rate as we watch our financial assets shrink with each passing month on Wall Street.

The Bush administration and economic analysts keep telling us that the recovery is just around the corner in the next quarter or so, but there is very little hard evidence of that prosperity happening anytime soon.

It is difficult to remember when the Dow was racing over 11,000 last May. Now, it is loitering around 10,000, aimlessly zigzagging on a hope and a prayer that the turnaround will come in the last three months of this year, or by the beginning of next year at the latest.

Still, you have to look carefully at the business statistics and other official data for signs that there still is a lot of life in the American economy and that the fundamentals are all there for a strong turnaround.

The most optimistic sign is that Americans are still buying. Consumer spending makes up two-thirds of the economy. And with the jobless rate at a relatively low 4.5 percent, King Consumer has kept the GDP out of minus territory, but just barely. The revised second quarter numbers showed that the economy virtually stopped growing, rising by a 0.2 percent rate instead of the earlier 0.7 percent estimate.

The still-robust housing industry has been one of the anchors in this economy that has kept us from officially falling into a recession, helped by some of the lowest interest rates in years.

Home resales fell 3 percent in July. Despite that decline, resales were still near record levels. The housing market, including new home sales and building starts, remains "very strong," say housing industry forecasters.

But if layoffs continue to rise, as they are likely to do, this sector will weaken, and one of the central pillars of this economy could crumble.

The latest consumer confidence numbers remain the best sign of where the economy is headed long-term. Confidence dropped in August as better-paying jobs were becoming harder to find. That bearish mood could slow consumer spending in the months to come.

But the Conference Board's nationwide survey found that consumers were pessimistic only in the short-term. The Consumers Expectations Index, which measures expectations of the economy over the next six months, has moved up a few points in the past month is up substantially from last February.

White House economic adviser Larry Lindsey thinks that the nearly $40 billion in tax cut rebates have helped to keep consumer spending up in the third quarter, which he thinks will begin showing a higher GDP growth rate. "The tax rebates came in the nick of time to help keep this economy out of a recession," he told me.

Still, it is hard to see what pattern of economic events at home or globally will pull this economy out of its malaise. The technology industry remains in a funk. American computer companies like Gateway are slashing their prices, but personal computer sales are poor.

Cisco Systems, a technology bellwether stock that has been battered over the past year, sees its business stabilizing. And Microsoft, back on offense in its antitrust battle, is showing more strength. But few see the technology sector coming back anytime soon.

A huge drag on U.S. businesses is the endemic weakness in the global economy.

Japan, the world's second largest economy, shows few signs of coming out of its deep, decade-long slump. Unemployment there has hit 5 percent, its highest level since World War II. It will likely reach 6 percent in the next few years as layoffs mount.

The government is ending Japan's pump-priming, public works spending, which has been a dismal failure, as well as its too-big-to-fail policies that have protected inefficient industries. But the economy is still over-taxed and over-regulated, and recovery is not on the horizon.

Europe, too, performing better than it has in many years, remains weak, held back by a huge welfare state, confiscatory tax rates, and encrusted trade and regulatory barriers that are anti-consumer and anti-growth.

Even so, there are huge, emerging consumer markets in Eastern Europe, China and elsewhere in Asia that spell global growth for the future.

Taiwan announced plans last month to end its remaining curbs on trade and investment in China and pursue a new, aggressive policy of economic integration with Beijing. China's entry into the World Trade Organization next year will also open the door to a long list of U.S. exports.

But the United States has clearly taken the most expansive monetary and fiscal action of any of the world's major industrial powers. The income tax cuts, the Fed's seven straight interest rate cuts, an administration that has put the brakes on government regulations, and a more frugal budget that is running a $153 billion surplus puts us in a strong position for a comeback.

The only question now is: When?


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